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The Jobs Report's Bad News

Stocks loved Friday’s jobs report, rising well over 200 points at this writing. But equities may be suffering from a certain irrational exuberance.

Yes, nonfarm payrolls rose by 163,000 in July. That’s better than the prior two months and probably signals no double-dip recession — at least for now.

But there are a lot of negatives in this report.

For one, the small-business household survey dropped 195,000. That’s what drove the unemployment rate up to 8.3 percent. These two factors virtually cancel out the better-than-expected rise in nonfarm payrolls.

By the way, the labor force shrunk by 150,000. The participation rate slipped to 63.7 percent. And the overall U-6 discouraged-workers unemployment rate increased to 15 percent.

Average hourly earnings registered a slight 0.1 percent increase. But that only adds up to a 1.7 percent increase year-on-year, which is below the rising consumer price index.

So Team Obama will undoubtedly continue to tell us that jobs and the economy are getting better, but this mixed employment report takes the steam out of that argument.

A couple of other economic reports that came out this week raise red flags. The ISM manufacturing index came in below 50 for the second straight month, and the ISM services index is barely above 50. (Below 50 signals contraction.)

Meanwhile, factory orders fell 0.5 percent and are down 2.6 percent at an annual rate over the past three months. Even worse, core capital-goods orders \(non-defense, excluding aircraft\) fell 1.7 percent in June and have dropped 3.9 percent annually over the past three months.

In other words, business investment is still weak. So are real consumer incomes. And the unemployment rate(explain this) continues to edge higher. All this springs from an economy growing no more than 1.5 to 2 percent.

Tax and regulatory threats are everywhere. From Obamacare and the EPA and the NLRB on the regulatory side, to the failure to extend all the Bush tax cuts, it’s a wonder businesses are investing and hiring at all — especially small businesses, which may have stopped dead in recent months.

My modest proposal for the worst economic recovery in modern times is threefold: Extend all the Bush tax cuts, slash the corporate tax rate, and approve and begin building the Keystone Pipeline. This is a supply-side proposal. It’s completely unlike all of Obama’s goofy, short-term, spending-and-tax-credit stimuli, which have completely failed.

Come to think of it, it’s sort of Mitt Romney’s economic platform.

—By CNBC's Larry Kudlow

Questions? Comments, send your emails to: lkudlow@kudlow.com

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